A thermal image of a poorly insulated house reveals significant heat loss in the white, red and yellow areas. Photo: Home Heat Helpline/Press Association

Generations of undemanding construction standards and poor building techniques have left our homes among the worst insulated in the developed world with an average heating bill of £600 and emissions of almost three tonnes of carbon dioxide. Cutting our domestic heating bills is a good way to reduce our carbon footprints and spend the fiscal stimulus here and in the US. But bringing our housing stock up to 21st-century standards is a hugely expensive task involving major changes to the way our buildings look. Don't imagine this is going to be easy.

The government's new consultation on Heat and Energy Saving (yes, yet another green paper on energy) states that the UK's tough 2050 emissions targets mean that the CO2 from domestic housing will have to fall almost to zero. The government is focusing initially on improving the 5m homes without cavity wall insulation. The reasons for doing this are clear: spending a few hundred pounds will guarantee a substantial reduction in heating bills, with a large detached property potentially recouping the cost in a year. Many will also gain from thicker loft insulation.

A house might cut its gas bill by a third by making these unobtrusive investments. But if we're to get overall emissions from homes down close to zero, we need changes throughout our houses by investing in a portfolio of expensive eco-refurbishments with paybacks of decades, not years.

I recently made some estimates of the cost of heat losses from a typical house.

Source of heat loss and the yearly cost

Getting to grips with the loss of heat through windows and from draughts is a good idea, but the savings are relatively small and will be expensive to achieve. Buying double glazing might cost £5,000 for a house, while two external doors with really good insulation could set you back £500.

There are also issues around the heritage and aesthetics of our homes. The UK has large numbers of extremely poorly insulated older houses with solid walls, and the best way of insulating these properties may be to clad the external wall with a plastic cover which is then be rendered or painted. As well as being costly, this alters the external appearance of the house, and there would be enormous resistance to making our appallingly leaky Victorian brick houses look like modern Dutch apartment blocks. Unfortunately, a real war on carbon emissions requires us to make unpopular choices like this.

Even at a time of low interest rates, few householders will voluntarily spend tens of thousands of pounds in order to make deep cuts in emissions. The government's green paper does not dodge this issue, admitting that the financial returns from full eco-refurbishment are not high. However, this honesty doesn't extend to other improvements, such as solar water heating, where the cash benefits are overstated several-fold. This over-optimism is unhelpful: rather than brushing the problems aside, we need to acknowledge the scale and difficulty of making deep cuts in domestic carbon emissions.

The government's proposed policy of voluntary agreements, complex financial schemes and unenforceable codes of practices has no chance of succeeding in today's cost-conscious world. Piecemeal and incoherent policies will not deliver substantial savings. We will both miss our carbon targets and keep families in fuel poverty.

The UK needs an urgent, nationwide programme to drive down the costs and improve the standards of eco-refurbishments. The plan should be organised and run locally, with campaigns moving from street to street. As in Germany, state-owned banks should offer cheap and accessible finance for home improvements at interest rates close to zero. The banks may also need an element of outright compulsion. If householders have gone for several decades without insulating their cavity walls, even a 144-page government green paper isn't going to persuade them to take action now.